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Big Blue Wants The World To Know Who's Boss


International Business

BIG BLUE WANTS THE WORLD TO KNOW WHO'S BOSS

On the crisp, sunny morning of Sept. 7, Lucio Stanca, the new chief of IBM Europe, greeted his top 100 managers in the basement of the company's Paris headquarters. The 52-year-old Italian promised to give all his "energy and passion" to speeding change. Between the lines, the message was clear: Anyone who lags behind just might be left there.

Following the abrupt departure of IBM Europe chief Hans-Olaf Henkel, Stanca and his top executives at the Paris operation are now racing to implement Chief Executive Louis V. Gerstner Jr.'s vision of a more nimble global company. Deadlines to create a new management organization are being pushed forward and efforts to think global redoubled. Henkel's departure "is a signal to everyone and especially his successor," says Martin Oertel, computer systems and client-server industry analyst at market researcher Dataquest in Britain.

Insiders say Henkel fell out with Gerstner over his reorganization efforts, which are designed to shift power from country managers to the heads of 14 new industry sectors. Impatient for change, Gerstner has bet his credibility on IBM's swift turnaround. "He has no consideration for anyone who is not 100% on his side," says Oertel.

"NOT MOTIVATING." But the rush to change is creating friction at the top levels of the computer giant. By adopting a shock-therapy approach to IBM Europe's transformation from a checkerboard of competing fiefdoms to a more streamlined, global organization, Gerstner may be risking major internal dislocation. Country managers have been bypassed for new pan-

European posts. Top managers who once formulated strategy now find themselves playing the role of local IBM "ambassador"--coddling clients, tending to small businesses, and preening IBM's image. The new setup has "enormously reduced the role of someone managing a country or a region," says a former senior executive at IBM Europe who left the company recently. "It's not motivating at all."

Stanca's first job will be to assuage wounded egos and get IBM's troops marching together. "The biggest challenge is getting everyone sorted out and creating a new mind-set," says Robert Dies, an executive vice-president at IBM Europe.

No doubt IBM needs a streamlined global structure. But analysts warn that changing too much at once could backfire, at least short-term. Rivals have changed more gradually and avoided management tumult. Hewlett-Packard Co., for example, gave country managers dual roles instead of demoting them. "When you talk about human nature, discontinuities are not good," says Bruno Didier, marketing vice-president for Compaq Computer Corp. in Europe.

TEAMWORK. There's no way IBM can avoid a serious shakeup, though. The old model of doing business--local operations complete with a chairman and board, financial staff, sales force, a full complement of technical experts, and unquestionable say over all aspects of the company--is passe. Now a debilitated Big Blue, struggling to control costs and cater to a global clientele, needs to serve its markets across industry groups and regions. That means breaking down its once sacrosanct national boundaries.

It also means shifting clout from country managers to the centralized groups of experts, each focused on a key region of the world. Dies says 70% to 80% of IBM Europe's business will be handled by new industry sector teams. The teams are expected to be named within the next six weeks and may be operating before the Jan. 1 target. "We're making progress faster than anticipated," says Dies. "IBM is lighter on its feet than most people give it credit for."

The main goal of the remake is to globalize control over product development, sales, and marketing. Before, multinationals found it impossible to do business with IBM as a single entity. Now, a single contract could cover the world. "Getting a global buying arrangement remains one of the hardest problems," says William R. Hoover, chairman of Computer Sciences Corp., an IBM customer.

One reason for Gerstner's sense of urgency is to improve IBM's overseas performance. Last year, European revenues fell 12.8%, to $21.85 billion. Europe showed a profit on operations of $714 million but posted a net loss of $1.7 billion as a result of charges for restructuring. In Japan, IBM lost $240 million on sales of $12.6 billion. So far this year, both regions are up (chart), but efforts to cut expenses abroad lag those in the U.S. Gerstner's new team in Europe says he has left the execution up to them. They'll need Stanca's passion--and more--to make it work.WHERE THE GROWTH IS

IBM revenues 1st quarter 2nd quarter

Year to year Year to year

Billions percent change Billions percent change

U.S.* $5.3 6% $5.9 0%

CANADA 0.5 -2 0.6 13

EUROPE/MIDDLE

EAST/AFRICA 4.7 3 5.5 0

ASIA PACIFIC 2.3 13 2.8 14

LATIN AMERICA 0.6 14 0.6 0

TOTAL $13.4 6% $15.4 3%

*Adjusted for sale of Federal Systems Division DATA: COMPANY REPORTS

Ira Sager in New York and Gail Edmondson in Paris, with bureau reports


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